Although the session began with the major equity indices in the red, all have since reversed to the upside following a second round of Q&A's by Fed Chair Janet Yellen at the House Financial Services Committee. The more disappointing news du jour was that crude oil inventories for the week ended February 20th have shown a massive build….again. Oil inventories swelled by a very sizable 87.4 million barrels for the seventh straight week of large builds which puts inventories at a fifth straight 80-year high of 434.1 million barrels. Helping to offset the latest build are product draws, down by 3.1 million barrels for gasoline and down 2.7 million for distillates. However at the wholesale level, supplies of both gasoline and distillates are still very heavy, up 3.3% and 11.2% year-over-year, respectively.
Aside from the seemingly unavoidable crude inventory build, the housing sector is getting a nice optimism boost following disappointments from earlier this week. Firstly, the Mortgage Bankers Association (MBA) noted that the purchase index for mortgage applications finally ended six straight weeks of decline with a 5.0% increase in the week ended February 20th. On a year-over-year basis though, the composite index is in the negative at -2.0%. This is again due to the refinance index declining again, -8.0% year-over-year for the third straight week of large declines. Mortgage rates rose in the latest week with the average 30-year mortgage for conforming loans ($417,000 or less) up 6 basis points to 3.99%, which could also be discouraging buyers. However, the fact that purchases have made a turnaround is a healthy sign for homebuilders and home-buyers.
After learning that there was a slowdown in existing home sales in January, optimism was pretty low in the housing sector. However, this morning, new home sales came in better than expected in January at an annual pace of 481,000 and managed to hold onto the big surge in December when sales jumped 8.1% to an upwardly revised 482,000. Price concessions may have been the reason for the pop in sales as the median price fell 2.6% to $294,000. This dip is actually minor and the year-over-year median price is still up significantly at +9.1%, but it does underscore price weakness in the existing home sales report. Additionally, inventory levels have been on the lean side for the past 5 years, however at 218,000 units now on the market, this is the highest level since March 2010. Relative to sales though, inventory still looks thin at 5.4 months which should actually encourage builders to step up activity.
The strength in January's report is center in the largest region, the South, where new home sales rose 2.2%. In the second largest region, the West, sales slipped by 0.8% while the Midwest showed a slight pop and the Northeast declined further. Technical adjustments are often quite prominent in the winter months when home-buying activity is slow, however this report helps shore up the housing outlook which actually shifted lower after the soft existing home sales report on Monday. Although Fed Chair Janet Yellen called the housing sector surprisingly depressed, this morning's report may give the hawks at the Fed more fuel to throw on the fire.